Capitalism s Success Stories. The Rise of 19 th Century Capitalist Economies

Transcription

1 Capitalism s Success Stories The Rise of 19 th Century Capitalist Economies

2 Today s Class Brief Review 19 th Century Hegemon Gold and Monetary Policy Other Success Stories

3 Brief Review

4 Basic Concepts l Production, specialization & trade (comparative/absolute advantage) l Balance of payments (imports, exports, investments) l Macro-economic policy (fiscal, monetary) l Currency exchange rates (floating, managed, trade deficits)

5 Balance of Payments l In calculating the balance of payments between countries, there are three main accounts to consider: current, capital, and official reserve accounts. l Economists also calculate the margin of statistical discrepancy. l Current Account n Imports: Goods/Services n Exports: Goods/Services n Investment Dividends n Government Goods/Services l Capital Account n International Investment l Official Reserves n Foreign Currency n Gold

6 Current Account Balances Compared Cumulative Balances from U.S. Billions

7 Simon Norfolk On Monday, September 17, 2007, Dr. Shirk spoke at an exhibition of border art by photographer Simon Norfolk at the Chicago Museum of Contemporary Photography. Norfolk was born in Lagos, Nigeria in 1963 and received degrees in Philosophy and Sociology at Oxford and Bristol Universities. His work has examined war zones and conflict areas. Kabul

8 Thomas Cole, Pastoral State, The Course of Empire (1836)

9 Cole, Consummation of Empire, The Course of Empire (1836)

10 Thomas Cole, Destruction, The Course of Empire (1836)

11 Thomas Cole, Desolation, The Course of Empire (1836)

12 Frieden, Global Capitalism Prologue-Into the 20 th Century: From Waterloo (1815) to the growing tensions of the 1890s.

13 Frieden, Global Capitalism Ch 1 Global Capitalism Triumphant: From the U.S. Populist Movement to the lead up to World War I.

14 Wizard of Oz as Allegory Frank Baum s book is an allegory of the Panic of 1893 By the end of the great depression, it was also a symbol of U.S. transformation (from B&W to technocolor) and the coming of a new golden era

15 Cowardly Lion: William Jennings Bryant, and perhaps all politicians Scarecrow: Wise, but naïve western farmer Dorothy: The everyman, led astray, but able to stand up to power Dow Jones Industrial (The-o-dore Average, backwards) Tin Woodman: Dehumanized industrial workers

16 Wicked Witch of the East: Eastern industrialists/ bankers killed by Dorothy s (political) cyclone Dow Jones Industrial Average,

17 Munchkins: Little people oppressed by the wicked witches (bankers and industrialists) Dow Jones Industrial Average,

18 Yellow Brick Road: Hazardous path of gold Dow Jones Industrial Average,

19 Loud roar, no power: Bryan ( ) ran for the presidency in 1896 and lost to William McKinley. Dow Jones Industrial Average, William Jennings Brian: Having behind us the producing masses of this nation and the world, supported by the commercial interests, the labouring interests, and the toilers everywhere, we will answer their [i.e. the bankers ] demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold.' (WJB, age 36)

20 Silver (not ruby) slippers: Populist cure for Panic of 1893 was free, unlimited coinage of silver Dow Jones Industrial Average,

21 Wicked Witch of the West: Western industrialists/ bankers attempting to seize control of silver Dow Jones Industrial Average,

22 Emerald City: Fraudulent world of greenback paper money (Washington, D.C.) Dow Jones Industrial Average, Wizard: Hapless Gilded age presidents.

23 Frieden, Global Capitalism Ch 2 Defenders of the Global Economy: The supporters of the Golden Age of Capitalism.

24 The Gold Standard Britain s hegemony in international markets bolstered and was bolstered by the adoption of gold as the primary basis of currency instruments around the world. Nathan Rothschild

25 Exchange Rates: The Price of Currency The price of one currency relative to another is known as the currency exchange rate The number of units of a currency required to buy another currency uses a simple formula: o Y-to-X exchange rate = o 1 / X-to-Y exchange rate The more abundant the supply of pesos, the fewer dollars it takes to buy them. Conversely, the fewer dollars available, the more pesos required to buy a dollar.

26 Exchange Rate: Market Price Dollar to Peso Exchange Rate: Peso to Dollar Exchange Rate: $-to-peso exchange rate = 1 / $-to-peso exchange rate $1.00 = 10 pesos $0.50 = 5 pesos $0.25 = 2.5 pesos $0.10 = 1 peso 10 pesos = $ pesos = $ pesos = $ peso = $0.10

27 How It Works: La Casa de Cambio Exchanging Dollars 9.75 pesos $-to-peso exchange rate BUY SELL pesos Exchanging Pesos.0975 dollars.1025 dollar 1 / $-to-peso exchange rate Converting dollars to pesos: I will sell you one peso for.1025 dollars, for a $ profit. Or every dollar you give me, I will give you 9.75 pesos (keeping.25 pesos as profit). Converting pesos to dollars: I will sell you one dollar, if you give me pesos (making a 2.5% profit). Or I will buy a peso from you for.0975 dollars (making a 2.5% profit).

28 Currency Exchange Markets The supply or demand for a given currency is what primarily determines its value Several factors affect supply and demand: government policy, trade, and currency markets.

29 Exchange Rate: Floating or Managed? Floating Exchange Rate: Currency value is determined by market demand without any government intervention. Managed Exchange Rates: Government or central bank attempts to influence a currency s value by: 1) targeting a specified range, 2) pegging its value to another currency, or 3) setting an official fixed rate of exchange. Theoretically, currency values float freely in the market. However, most governments try to manage their currency s value in some way. When a country s currency value is fixed, the government exchange rate may not reflect actual demand for the currency, contributing to a black market in which buyers and sellers trade the currency at market rates.

30 The Gold Standard Using gold as currency or as the basis of a fixed currency offers the advantage of stability, but creates the problem of inflexibility and zero-sum competition.

31 Frieden, Global Capitalism Ch 3 Capitalism s Success Stories: The experiences of Britain, the United States, Germany, & Japan.

32 The Case of Great Britain Compared to other European states, the United Kingdom had unique advantages that enabled it to develop a strong national economy and rapidly expand its colonial holdings.

33 The Industrial Revolution Technological Change and Industrial Restructuring The 18th and 19th centuries brought technological innovations in energy (coal to steam), production (machinery), transportation (railroads), and communications. The invention (or perfection) of the steam engine by Thomas Newcomen (1712) made it possible to harness the power of combustion to increase productivity and speed up the transportation of goods in the economy.

34 Britain s Advantages Geography: British isles uneven geography amenable to textiles. Unified national identity: Merging of England & Scotland in Maritime imperitive: Need to develop specialized industries. Population growth: Pressure for free trade in agriculture. Head start: Early advances enabled vast colonial holdings.

35 Liberalizing Governance & Trade Charter of Liberties (1100) Magna Carta (1215) Corn Laws ( ) Navigation Acts ( ) Cobden Chevalier Treaty (1860)

36 Colonial Expansion In the age of mercantilism, national competition was fueled by colonial expansion to gain resources and power by expanding territorial control and influence into the Americas, Africa, Asia, and the South Pacific.

37 British Colonialism

38 Capitalism s Other Success Stories

39 Late 19 th Century Shift New technologies (trains, steamships, telegraph, refrigeration, and chemicals) Emerging industrial economies with large domestic markets (USA, Germany), as well as newcomers like Japan.

40 Global Industrial Production (%) Table 3.1, Lairson and Skidmore, p s 1890s 1900s U.S U.K Germany France Russia Japan India

41 Shifting Production, 1870s-1910s s United States Germany Russia India Source: Table 3.1, Lairson and Skidmore, p. 50. United Kingdom France Japan

42 The Case of the United States

43 An Emerging Hegemon After gaining independence, United States enjoyed abundant advantages, including a large territory, abundant resources, a growing population, flexible institutions.

44 The Case of the United States Consolidation of nation-state Centralization of political authority Restructuring from agriculture to manufacturing National identity forged to reduce social cleavages

45 Competing Interests Jefferson s vision argued for an agrarian society, and favored free trade in agriculture. Hamilton s vision argued for an industrial society and advocated the protection of infant manufacturing industries Thomas Jefferson Alexander Hamilton

46 Friedrich List Also reacting to the perceived threat from the United Kingdom, German immigrant Friedrich List argued for U.S. protectionism, claiming that The power of producing [is] infinitely more important than wealth itself. Friedrich List ( ) was a German exile and vigorous proponent of mercantilist policies in the United States.

47 A Reluctant Hegemonic Power With British economic power in decline, the United States was the world s emerging hegemonic power U.S. isolationism and reluctance about global leadership created a power vacuum in the international system

48 Today, incidentally, the U.S. population has similarly isolationist views

49 The Case of Germany

50 The Case of Germany Consolidation of nation-state Centralization of political authority Restructuring from agriculture to manufacturing National identity forged to reduce social cleavages

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53 Key Dates in German History Holy Roman Empire ( ) Protestant Reformation (1517) German Confederation (1814) German Customs Union (1834) German Empire (1871) The champion of German integration, Chancellor Otto Von Bismarck ( ) promoted Prussian expansion vs. Austria (1866) and France (1870), forged the German Empire, and established a fragile balance of power in Europe (later eroded after Emperor Wilhelm II removed Bismarck in 1890).

54 The Case of Japan

55 The Case of Japan Consolidation of nation-state Centralization of political authority Restructuring from agriculture to manufacturing National identity forged to reduce social cleavages

56 The Case of Japan Tokugawa Shogunate ( ) Foreign intrusion by U.S. and U.K. (1850s) Meiji Restoration (1867) Russo-Japanese War (1904) Tokugawa Ieyasu ( ) IMAGE SOURCE:

57 The Case of Japan Tokugawa Shogunate ( ) Foreign intrusion by U.S. and U.K. (1850s) Meiji Restoration (1867) Russo-Japanese War (1904) Commodore Matthew Perry 1853 Black Ships in Edo Harbor IMAGE SOURCE:

58 The Case of Japan Tokugawa Shogunate ( ) Foreign intrusion by U.S. and U.K. (1850s) Meiji Restoration (1867) Russo-Japanese War (1904) The Emperor Meiji Iwakura Mission, 1871 IMAGE SOURCE:

59 The Case of Japan Tokugawa Shogunate ( ) Foreign intrusion by U.S. and U.K. (1850s) Meiji Restoration (1867) Russo-Japanese War (1904) British training of Japanese naval forces Japanese Naval Power vs. Russia

60 Japan Defeats Russia Japanese propaganda featuring Tsar Nicolas II and his true-life nightmare: a Japanese victory in 1905 (achieved through the defeat of the Russian Pacific Fleet at Port Arthur, and the Second Pacific Fleet from the Baltic Sea. In 1905, an unsuccessful revolution sought to oust Nicolas from power.

61 Thank You